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Why You Need More Than the Statutory Minimum When You Buy Auto Insurance

Takeaway:Every region requires a statutory minimum of auto insurance to minimize everyone's losses, but in most cases, you likely need to purchase additional coverage.

Source: Fantasista/Dreamstime.com

Whenever you operate a motor vehicle, you run the risk of getting into an accident. To ensure drivers can compensate each other for any bodily injuries or property damage, all U.S. states, territories, and Canadian provinces have established financial responsibility laws that mandate the purchase of a minimum amount of auto insurance.

Components of Auto Insurance

In the United Sates, the statutory minimum has three components. The first component covers bodily injury for each party involved, the second covers the total limit for bodily injury resulting from any one accident, and the third is the limit for property damage. The three limits are commonly written side by side with a slash to separate the numbers, in the form of 10/20/5, for example, with each number representing thousands of dollars. Thus, the example would be $10,000, $20,000, and $5,000 of coverage of the respective type.

Statutory Minimum Auto Insurance Chart

State/Territory

Limits

Details

Alaska

50/100/25

Alabama

25/50/25

American Samoa

10/20/5

Arkansas

25/50/25

Arizona

15/30/10

California

15/30/5

Low-income drivers can obtain insurance through the California Automobile Assigned Risk Plan, which has limits of 10/20/3.

Colorado

25/50/15

Connecticut

20/40/10

Delaware

15/30/10

District of Columbia

25/50/10

Florida

10/20/10

Georgia

25/50/25

Guam

25/50/20

Hawaii

20/40/10

Idaho

20/50/15

Illinois

20/40/15

Indiana

25/50/10

Iowa

20/40/15

Kansas

25/50/10

Kentucky

25/50/10

Louisiana

15/30/25

Maine

50/100/25

$1,000 in medical payment coverage is required as well.

Maryland

30/60/15

Massachusetts

20/40/5

Michigan

20/40/10

Minnesota

30/60/10

Mississippi

25/50/25

Missouri

25/50/10

Montana

25/50/10

Nebraska

25/50/25

Nevada

15/30/10

New Hampshire

25/50/25

$1,000 in medical payment coverage is required as well.

New Jersey

15/30/5

Basic policy limits are 10/10/5, but do not offer uninsured/underinsured motorist coverage.

New Mexico

25/50/10

New York

25/50/10

Insureds must also have 50/100 for wrongful death.

North Carolina

30/60/25

North Dakota

25/50/25

Ohio

12.5/25/7.5

Oklahoma

25/50/25

Oregon

25/50/20

Pennsylvania

15/30/5

Puerto Rico

4/4/4

Minimums are purchased via a government agency known as the Automobile Accident Compensation Administration. This premium is refunded if you procure auto insurance privately.

Rhode Island

25/50/25

South Carolina

25/50/25

South Dakota

25/50/25

Tennessee

25/50/15

Texas

30/60/25

Utah

25/65/15

Virginia

25/50/20

Vermont

25/50/10

Virgin Islands

10/20/10

Washington

25/50/10

Wisconsin

50/100/55

West Virginia

20/40/10

Wyoming

25/100/15

Auto insurance policies provide coverage in the United States of America, its territories and possessions, Puerto Rico and Canada. There is also a provision for those who travel in states or provinces where the statutory minimum is higher than the minimum in the state where the vehicle is garaged. In this case, the limits increase to the statutory minimum of the region in which an accident occurs. For example, a car is garaged in Illinois (20/40/15), the driver is the at-fault party in Wisconsin (50/100/55), and there is $30,000 in property damage. The policy would cover the entire loss because Wisconsin's statutory minimum is higher.

Are Statutory Minimums Enough?

In most cases, the answer is no. To ensure repayment, auto loan lenders require borrowers to name them as a loss payee on auto insurance policies. Lenders may also insist on limits higher than the statutory minimum as a condition for the loan. In these cases, the consumer has to satisfy it by buying sufficient liability insurance coverage.

Even if the car is fully paid for, the answer is still likely no. Take for example, a driver with California's statutory minimum of 15/30/5 collides into two parked cars. She does $6,000 in damage to one car, which does not have uninsured/underinsured motorist coverage and $7,000 in damage to the other, which does have uninsured/underinsured motorist coverage of 250/500/50. Because her limits are insufficient to cover the damage, the owner of the first car files a small claims action and the insurer for the second car sues the at-fault driver. She ends up responsible for the $8,000 difference between the policy limit and the amount of property damage she caused.

This brings us to a third reason why statutory minimums may be insufficient. Uninsured/underinsured motorist coverage provides extra coverage to cover damages beyond the other party's limits. In the example above, the insurer of the second vehicle adjusted the claim and provided for a rental vehicle while the car was being repaired. Thus, the insurer had the right to seek reimbursement for indemnification from the at-fault party.

Conclusion

Although you are required to carry a minimum amount of auto insurance to satisfy legal requirements of where you reside, the minimum is often insufficient to provide adequate coverage for losses. Moreover, you may be required to maintain higher limits to satisfy a lender's requirements. The additional cost of the limits is low for the amount of additional protection provided, and should you be an at-fault party for a large loss, you may consider the extra cost a bargain.

Marc Jorge Estrella is an insurance professional with extensive interdisciplinary experience in the property and casualty insurance industry. His career in the industry spans the areas of information technology , complex claims management, policyholder advocacy and insurance company operations. He also has experience in developing and presenting educational materials in both classroom and online formats.

Mr. Estrella received his Master of Science in Insurance Management from Boston University, and his Bachelor of Arts in Economics and Business Administration from Trinity University. He also holds both the Chartered Property Casualty Underwriter and Certified Insurance Data Manager professional designations. He is a resident of San Francisco, California.